The British Chancellor of the Exchequer, responsible for setting the UK’s budget, today announced plans for a new 25 percent tax intended to close loopholes that presently see multinational companies extracting their profits to lower-tax regimes like Ireland. It has already been described as a “Google tax,” though it affects a practice that is widespread across the tech industry and others beyond it: Apple, Amazon, Starbucks, and others have all been subject to scrutiny about the ways in which they account for their profits.
“Today I am introducing a 25% tax on profits generated by multinationals from economic activity here in the UK which they then artificially shift out of the country.”
With the present measure, which will be put into effect from April 2015, Chancellor George Osborne is hoping to make it uneconomical for companies to try and evade their proper tax responsibilities — the 25 percent levy is higher than the UK’s 21 percent corporate tax rate — but there remain big questions about how it will be implemented and interpreted. The Diverted Profits Tax, as he calls it, will target profits generated from activities within the UK, which isn’t exactly the same thing as profits generated from sales within the UK. Time will tell whether creative accounting will be able to work around the new provisions, but at least there’s now a consensus among European lawmakers and regulators that the status quo of artificial profit shifting must come to an end.